“I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.” – Isoroku Yamamoto
This famous quote expressed by late Japanese General Yamamoto right after the Pearl Harbor attack is a great analogy to explain the Logistics industry today. More than 70 years later the fear of having awakened a sleeping giant is evident for executives inside incumbent transport companies.
During the 2013 holiday season, bad weather and massive growth of e-commerce purchases resulted in millions of orders being delayed – leading to an outrageous number of refunds, gift cards, overtime, and most importantly, customer dissatisfaction.
According to Statista, the bulk of these orders were Amazon`s. The company`s sales in 2013 totaled more than those of the nine other largest US merchants combined. Nowadays, the company is growing at a furious pace accounting for 53% of the whole growth in the e-commerce sector and holds the lion`s share of all e-commerce orders in the US at 43%.
Industry experts never had doubts about Amazon`s ambitions to step into the logistics market but many experts point to the 2013 Christmas fiasco as a catalyst for the emergence of the “Dragon Boat” Project. Since it started, the company has invested heavily in cutting-edge warehouses, purchased thousands of trailers, leased dozens of planes, started developing a marketplace App, and acquired a license to act as an ocean shipping freight forwarder.
So far, Amazon is fixated on improving services and reducing its own shipping costs. This narrative is similar to what happened with Amazon Web Services (AWS) – where they were demanding so many resources for computer processing power and data storage that it was decided to build their own servers and offer the surplus capacity to external partners. If these efforts prove fruitful, they will inevitably offer any extra shipping capacity to the public. This is the threat spotted by existing Transport & Logistics companies. On top of that, incumbents fear Amazon because of their sophisticated data analytics and technological supremacy.
According to a recent study from PwC, the Transport & Logistics sector lags significantly behind in advanced analytics with only 10% of survey respondents rating their data analytics as advanced. The report also mentions that 90% of surveyed executives indicated that digitalization and data analytics will play a crucial role in the long-term profitability and survival of their companies. However, catching up technologically with Amazon may take years of time, millions of dollars and still prove useless.
“The end-game objective is far bigger than just operational improvement. Ultimately, it’s about creating profit, growth, and value on a sustained basis” – Lisa Harrington, The Predictive Enterprise
Established players, no matter the industry, find it difficult to change gears after years of smooth coasting down success avenue. Many find themselves unable to cope with market disruption and begin to waste money on sub-optimal processes and analytics, then drag along hoping for better days.
Until now, leading logistics companies relied on the existing supply chain analytics, planning, and optimization solutions. These optimization solutions, however, have a big limitation – they take a reactive approach as opposed to a proactive one. They can produce a suggestion to optimize the supply chain only after the real-time shipment data gets in the IT systems, leaving little to no time to make significant adjustments to the transport network plan. Moreover, these solutions are only affordable to big companies, leaving small players scrambling for any optimization solution.
Here is where technology startups are digging a niche which is to help established companies transition into offensive mode. The action of pivoting, as in basketball, is key to finding a new way and unleashing growth back into the enterprise. The competition is intense, but the transportation sector is a big field with plenty of space to encourage healthy competition and innovation.
Gaining traction in this ambitious field of Big Data and predictive analytics is Transmetrics, which helps companies in the Transport & Logistics sector bridge the gap between conservative forecasting and analytic superiority. Currently, focusing on reducing empty space in the trucking sector, Transmetrics adopts an analytics and predictive approach to better utilize space in road transport. This helps trucking companies reduce their carbon footprint, increase their utilization capacity and keep an advantage over the competition.
This prediction approach, based on advanced statistical methods, machine learning, data mining algorithms and deep industry knowledge allowed Transmetrics to achieve an average prediction accuracy of 95% and help clients experience a 25% reduction in costs. More importantly, it led to better decision making and double-digit revenue growth.
The Transport & Logistics sector is already a highly competitive and crowded place and Amazon`s entry is only going to add more sizzle to the pan. As one of the recent “Logistics Management” reports put it – at the end only the most analytically fit will survive.
The power to accurately forecast and predict demand is an important mean of differentiating a service from competitors and ensure customer satisfaction. Customers measure the value of this analytical power in relation to how it helps them meet their needs or solve their problems. Everything else is secondary.